WEST DES MOINES, Iowa -- Saving for your first home can be a challenge and a new type of account that went into effect Jan. 1 can help you save more quickly.
Iowa legislators passed the law to allow for banks to offer a First Time Home Buyers Account in May 2017.
Unlike a classic savings account, there is a penalty for withdrawing money and using it for something like vacation.
State Savings Bank Lender Bryan Rowland said the money going into this account can only be used for the down payment or initial purchasing of the house.
“I know when I bought my first house, it’s a challenge to save up the money for a down payment on the house. It’s the biggest investment a lot of people make and the great thing about it is not only can I set one up for myself if I wanted to buy a house. But if I had a family member or somebody who wanted to help me, they could set one up, receive the tax deduction themselves and have me as the beneficiary,” Rowland said.
This savings account gives people a break when they are trying to buy their first home.
The interest rate is 1.25 percent higher than a classic savings account, which makes a big difference.
Rowland said the biggest challenge is the down payment.
“A lot of times that can be a really big number whether it could be $5,000, $10,000 or more. I mean, especially if you’re a younger person, it’s not always easy to start saving that money, especially if you have other things like student loans. I would say that’d be one of the biggest struggles,” Rowland said.
Lenders say this account might attract younger home buyers, who normally stick to renting.
Erin Feilmeier, a young West Des Moines mother, says she is really interested in this account because it would help her save up more quickly.
“It’ll be great to cut down that time of living in a rental. Having to worry about calling maintenance when something goes wrong instead of being able to fix it on our own. And like I said earlier, having a larger area for my family to live and my son to run around,” Feilmeier said.
Not only does it help you save, but it’s the first time you can take a tax deduction from a portion of your contribution to the account.
The 1.35 percent interest you get on the account is also tax free.
A first time home buyer is considered someone that hasn’t owned land or a home in the last three years.